Monday, October 20, 2008

Credit Is Easing

Don't quite pop the champagne yet, but it appears that there is some movement towards credit easing that could spell the end of the subprime/credit disaster, and avert the possibility of any long term recession. The London Interbank Offered Rate or LIBOR (pronounced lie-bore), is the measurement of what banks charge each other for short term loans to cover normal day-to-day shortages in cash. Since January, the LIBOR rate associated with the U.S. dollar has been rising and indicating a tightening of credit between banks. Not a good thing. Especially if you are a bank and you've got depositors yanking their money out of fear of a bank failure. Not having enough cash can cause a bank to easily fail in this environment.

Now, for the first time since January, the lending rate for 3-month loans between banks is breaking to the downside (See Full Story). All the billions of dollars of credit easing action by our Federal Reserve and Treasury Departments and World Banks appears to be starting to work.

Once the banking system can feel more confident about their operations, this can lead to consumer and business lending getting looser. This could free up cash to keep our economy going and avert a crippling and deep recession or, even a depression. It might just be that all the actions by the Bush Administration and the world's banks (like our own Federal Reserve) might have caused us to dodge a major bullet. We probably won't know that to be true until the summer of next year. Let's all hope for the best.

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